Internet-based platform providers have significantly benefited from the increased remote activities over the past two years. Additionally, the continued digital transformation of almost all industries has contributed to the upbeat investor sentiment toward the internet industry.
In addition, with the arrival of web 3.0, the next generation of the web, the internet is anticipated to experience a seismic shift. The new web is expected to boost browsing effectiveness and interconnectivity, boosting the industry’s growth prospects.
Furthermore, the government intends to invest significantly in broadband, cybersecurity, and electric vehicles. The global internet services market is expected to reach $644.87 billion by 2028, growing at a CAGR of 4.4%.
So, given the industry’s impressive growth attributes, we think it could be wise to scoop up quality internet stocks Shutterstock Inc. (SSTK) and Data Storage Corporation (DTST). Conversely, it could be wise to avoid Twitter Inc. (TWTR), given its poor fundamentals and ongoing lawsuit related to Elon Musk’s termination of his bid to acquire the company.
Stocks to Buy:
Shutterstock Inc. (SSTK)
SSTK is a technology company that offers high-quality content and creative workflow solutions in North America, Europe, and internationally. The company offers its services under the brand names Shutterstock, Bigstock, Offset, TurboSquid, and PremiumBeat, as well as Application programming interfaces to improve workflow, project management requirements, and search capabilities.
Last month, SSTK announced the rebranding of The Newsroom to Splash at the Visa Pour L'Image Festival in Perpignan, France. The Newsroom has established itself as the preeminent destination for unparalleled access to premium exclusive Editorial content since its inception in May 2021.
The Newsroom's unrivaled offering was bolstered further in May 2022 by the acquisition of Splash, an industry-leading source for image and video content across celebrity, red carpet, and live events for over three decades.
During the second quarter ended June 30, 2022, SSTK's revenue increased 9% year-over-year to $206.9 million. Its subscribers increased 15% year-over-year to 368000. The company's average revenue per customer grew 1% from the year-ago value to $359, while its image collection expanded 9% from the prior-year quarter to 415 million images.
Street expects SSTK's revenues and EPS to rise 8.6% and 8.6% year-over-year to $839.91 million and $3.78, respectively, in fiscal 2023. In addition, SSTK's EPS is expected to rise at a 5% CAGR per annum over the next five years. Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in three of the trailing four quarters.
SSTK's POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SSTK also rated a B for Growth, Quality, and Value. Within the F-rated Internet – Services industry, it is ranked #3 of 30 stocks. To see additional POWR Ratings for Stability, Momentum, and Sentiment for SSTK, click here.
Data Storage Corporation (DTST)
DTST primarily serves the U.S. market with multi-cloud information technology solutions. The company provides data protection and disaster recovery solutions, high availability, data vaulting, DRaaS, IaaS, message logic, standby server, support and maintenance, and internet solutions.
For the second quarter ended June 30, 2022, DTST's sales increased 36.8% from the year-ago value to $4.83 million. Its gross profit grew 22.8% year-over-year to $1.85 million. The company reported cash and cash equivalents of $11.21 million for the six months ended June 30, 2021.
DTST’s EPS is expected to grow 94.7% in the current fiscal year. The consensus revenue estimate of $24.8 million in fiscal 2022 represents a 66.7% increase from the same period last year.
It is no surprise that DTST has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Sentiment and a B for Value and Quality. In the F-rated Internet industry, it is ranked #6 of 66 stocks.
Beyond the POWR Ratings grades I have just highlighted, you can view DTST ratings for Growth, Momentum, and Stability.
Stock to Sell:
Twitter Inc. (TWTR)
TWTR serves as a real-time platform for public self-expression and conversation. Twitter is the company's primary product, a platform that allows users to consume, create, distribute, and discover content.
The social media company sued Musk for allegedly breaching his bid to acquire the company. Related to the litigation, a trial is set to begin in the coming week.
For the second quarter ended June 30, 2022, TWTR’s revenue decreased 1.2% year-over-year to $1.18 billion. Its loss from operations came in at $343.76 million, compared to income from operations of $30.25 million in the prior-year quarter. The company reported a net loss of $270 million, compared to a net income of $65.65 million in the second quarter of 2021. Its loss per share amounted to $0.35, compared to an EPS of 0.08 in the same quarter last year.
Analysts expect its EPS to decline 27.3% in the next quarter ending December 2022 and 46.4% in fiscal 2023. The stock has declined 34.3% over the past year and 6.2% over the past month.
TWTR’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system.
It also has a D grade for Stability, Sentiment, and Momentum. TWTR is ranked #45 in the Internet industry. Click here to see the additional POWR Ratings for TWTR. (Value, Growth, and Quality).
SSTK shares were trading at $50.07 per share on Thursday afternoon, down $1.33 (-2.59%). Year-to-date, SSTK has declined -54.34%, versus a -20.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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